Question

Tidex Company is a manufacturer of cleaning detergent. Cleanx is manufactured on a weekly basis. The following standards have been established to produce 10,000 litres of Cleanx.

Standard direct labour hours of 5,000 to mix 10,000 litres of detergent
Standard direct labour rate per hour: $18
Actual direct labour hours consumed: 5,500
Actual direct labour rate: $18.45

Calculate the Labour Quantity Variance (LQV).
a) 250 hours favorable
b) 250 hours unfavorable
c) 500 hours favorable
d) 500 hours unfavorable

Answer 1

The Labour Quantity Variance (LQV) for Tidex Company is calculated as (5,000 standard hours - 5,500 actual hours) x $18 standard rate, equating to a 500 hours unfavorable variance.

Step-by-step explanation:

The Labour Quantity Variance (LQV) is calculated by subtracting the standard hours allowed to produce the actual quantity from the actual hours worked, and then multiplying the result by the standard rate per hour. In this case, Tidex Company has a standard of 5,000 direct labour hours to produce 10,000 litres of Cleanx and an actual direct labour hours consumed of 5,500. The standard rate is $18 per hour.

The formula for LQV is: (Standard Hours - Actual Hours) x Standard Rate. Plugging in the values we get: (5,000 - 5,500) x $18, which equals -500 x $18, resulting in -$9,000. Since actual hours are greater than the standard hours, we have consumed more hours, hence the variance is unfavorable. In terms of hours, this is simply a 500 hours unfavorable variance because we ignore the negative sign when talking about the direction (favorable or unfavorable) of the variance.